Microsoft Loses Patent Dispute Over MP3 Digital File Format

Microsoft was ordered by a federal jury Thursday to pay $1.52 billion in a patent dispute over the MP3 digital file format, the technology at the heart of the digital music boom.

If upheld on appeal, it would be the largest patent judgment on record.

The ruling, in U.S. District Court in San Diego, was a victory for Alcatel-Lucent, the networking equipment company. Its forebears include Bell Laboratories, which was involved in the development of MP3 almost two decades ago.

At issue is the way the Windows Media Player software from Microsoft plays audio files using MP3, the most common method of distributing music on the Internet. If the ruling stands, Apple and hundreds of other companies that make products that play MP3 files, including portable players, computers and software, could also face demands to pay royalties to Alcatel.

Microsoft and others have licensed MP3 — not from Alcatel-Lucent, but from a consortium led by the Fraunhofer Institute, a large German research organization that was involved, along with the French electronics company Thomson and Bell Labs, in the format's development.

The current case turns on two patents that Alcatel claims were developed by Bell Labs before it joined with Fraunhofer to develop MP3.

"Intellectual property is a core asset of the company," said Joan Campion, a spokeswoman for Alcatel-Lucent. "We will continue to protect and defend that asset."

Thomas W. Burt, the deputy general counsel of Microsoft, said the company would most likely petition the judge in the San Diego case, Rudi M. Brewster, to set aside or reduce the judgment. If she does not, Microsoft will probably take the case to the federal appeals court in Washington, which hears patent cases.

Microsoft argued that one patent in question did not apply to its MP3 software and that the other was included in the Fraunhofer software that it paid to license. Moreover, it argued that the damages sought by Alcatel were unreasonably high, pointing out that it paid Thomson, which represented the consortium in its dealings over the patent, a flat $16 million fee for the rights to the MP3 software.